Danville is one of 32 California cities that may see its credit rating downgraded by Moody's Investors Service, one of the nation's leading credit rating agencies. The possible downgrades are a result of "fundamental economic pressures in the state" among other factors, according to a release.
"California cities operate under more rigid revenue raising constraints than cities in many other parts of the country," said Senior Vice President Eric Hoffmann, who heads Moody's California local government ratings team. "Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state's economic recovery tracks the nation's."
Certificates of participation (COP) issued by the town in 2001 and 2005 are included in the review, though Danville's overall Aa1 credit rating is not under review by Moody's. In a letter to residents, City Manager Joe Calabrigo said town officials will take "this opportunity to clarify the purpose for this review and what it involves."
Danville's COPs were used to acquire and construct public parking and improvements downtown prior to the dissolution of the state's redevelopment agencies. The COPs were separately considered and rated Aa2 by Moody's prior to their issuance in 2001 and 2005, Calabrigo noted.
"The Moody's review is being conducted as a result of the change in the credit profile of the state of California and their concerns regarding the effect of the economy upon the state and cities in general," Calabrigo wrote. "Moody's representatives have characterized this as a 'recalibration of the methodology' being used by Moody's to rate lease-backed debt."
Moody's release stated that the review and potential downgrades were prompted by several recent high-profile city bankruptcy filings that "demonstrate that the willingness of some cities to continue to cut costs and associated municipal services to pay debt obligations may be eroding." As a result, debt obligations that are paid out of a city's general fund must compete with other priorities for payment.
"Many cities' assessed valuations for the property taxes that support their general obligation bonds have declined only modestly in recent years, but their general funds have come under significantly more pressure," Hoffmann said.
But Danville has no plans to undertake an additional debt financing, Calabrigo wrote. Both COPs under review are "recognized obligations" and property tax trust fund revenues are used to meet those debt service obligations without affecting the town's general fund.
"This review reflects (Moody's) concerns regarding the condition of the state's finances and the financial condition of the typical California city," Calabrigo wrote. "Danville is not a typical California city with respect to its finances and financial health. The town continues to be in a very positive fiscal condition."
Calabrigo offered the following information regarding Danville's financial status:
- Danville is not part of any defined benefit pension system for town employees and has no OPEB liabilities.
- Danville's statement of net assets shows increasing fund balances for the past five fiscal years.
- Danville's property values have remained very strong in comparison to what has occurred throughout the state of California and Contra Costa County.
- Danville's sales tax revenues are at an all-time high and have increased for the past three fiscal years.
- Danville's operating reserve is funded at over 40 percent of the operating budget, and the Town has set aside significant capital reserves.
- Danville's annual budget includes 10 year fiscal forecasts which are used to plan for future needs and services and to ensure long term fiscal sustainability.
- Danville has been recognized for its outstanding financial reporting each year since 1997, by either the California State Municipal Finance Officers Association or the Government Finance Officers Association.